The Tories have "absolutely no plans" to increase VAT to 20% if they win the next general election, shadow health secretary Andrew Lansley has insisted.

On the BBC’s Andrew Marr Show, Mr Lansley rejected reports that the move was being "very actively considered".

He said "no such plan" existed and denied reports that "senior level discussions" were held to discuss it.

Except that The Sunday Telegraph (known as The Torygraph for good reason, for those not familiar with the UK press) has suggested that that VAT rise would be introduced by a Conservative government within "weeks" of a Tory election victory. As the BBC again note:

According to the newspaper, the decision to make the increase increase as part of an "emergency" budget to reduce the UK’s debt had been taken by Mr Cameron and Shadow Chancellor George Osborne.

I’ll be frank: I don’t believe the Tories on this for a moment.

We know the Tories love indirect tax. Their friends in the Institute for Fiscal Studies and at Oxford University (much the same thing these days, it has to be said) are saying we should massively increase VAT in the UK – as I noted in detail last year – suggesting a rate way above 20%. And KPMG and PWC have both actively promoted VAT increases in the UK as the rest of the world as the answer to all tax problems.

But note what I showed just a week or so ago – that VAT is intently regressive – meaning that the burden of the tax falls much more heavily on low earnings households than it does on those with higher income. In the circumstances Stephen Timms, #2 at the Treasury somewhat missed the target when he told the BBC:

If David Cameron is seriously considering this, he needs to explain why he thinks it’s right that ordinary families should pay more tax while he’s pledging £200,000 tax cuts for the 3,000 richest estates.

True, but comparing VAT with inheritance tax is misleading. The issue here is a simple one: the Tories are planning to increase taxes on middle and low income families to know doubt subsidies the wealthiest families. That’s because of the nonsense we hear time and again about their desire to keep down tax rates to support entrepreneurs. Those ‚Äòentrepreneurs’ are of course the bankers and their friends who have brought this country to its knees. And the Tories want to exacerbate the trend.

All governments love indirect tax: none more so than European ones who basically imposed it upon the UK as a precondition for joining the then EEC. It is also cheap to administer: VAT costs about 2p in the £ to collect; income tax/PAYE about 30p in the £; and CGT/IHT about 60-70p in the £. The reason is simple: for most people it is very hard to avoid VAT.

As previous correspondents have pointed out our 15% rate of VAT is one of the lowest in Europe. Rates of between 20 and 25% are common. And I know something else: the Europeans hate our VAT rate. If the Tories don’t increase VAT out of choice then I imagine they’ll be told to by the EU. The EU have been nudging us for years on this one, although surprisingly this hasn’t been widely reported.

Finally, did you know that our zero-rate has no recognition in EU law whatsoever and is seen by the Commission as anti-competitive. If the EU don’t tell us to up the 15% then I can guarantee they’ll tell us to get rid of zero-rate. I suspect they’ll get us on both however.

I’m with you all the way on this one. The real point about the Nordics is that while gross total tax incidence is regressive (mainly because of high VAT), net incidence (after looking at how tax reciepts are spent) is not—it’s far more progressive than in the UK; eg, good pensions, good social provision for the aged, children’s pre-school care and so on.

Much the same is true for many other EU states, and helps exlain why the post tax Gini in much of the EU is much lower than in Britain. That’s the bit of the story that always gets left out!